Commercial Property – emerging from Covid-19 with a successful property strategy
With lockdown restrictions easing we’re starting to see a return to some degree of normality, or whatever the new form of normal will be, says Richard Roberts, director at Roberts Vain Wilshaw Chartered Surveyors.
Occupiers of leasehold properties will be eyeing 24 June with trepidation as it’s the day the next quarter’s rent is due. Despite the measures introduced by the government to prevent evictions, many landlords are still pursuing tenants for non-payment of rent from the March quarter day. Landlords saw collection rates plummet with some reported as being as low as 15% across retail portfolios.
We’re finding that landlords are prepared to be reasonable where tenants enter into a dialogue rather than withholding payment and we’re agreeing lease re-gears and rent deferments for many tenants. A lease re-gear is the practice of renegotiating leases mid-term;- for one occupier client we’ve agreed lease extensions in return for 6 months rent free across 75% of their portfolio, reducing rental outgoings by over £350,000 over the next 6 months. This gives them the breathing space required to get sites trading back to normal levels whilst the landlord gets an extension to the lease term, improving the value of their investment whilst helping out their tenants. It’s an effective way of easing cashflow that could still be agreed in principle before rents are due on 24th June.
The other major property cost, Business Rates has been used by the Government to deliver a series of measures and grants for 2020/21 but the recent announcement postponing the 2021 revaluation will come as a blow to many that would have benefitted from reduced RV’s at revaluation. Ratepayers can however take action to reduce their rateable values as a consequence of Covid19 as the pandemic and subsequent lockdown has created a Material Change in Circumstances (MCC) from 23rd March 2020. Reductions should continue after lockdown has ended with the extent of any reduction depending on numerous factors including ongoing restrictions, social distancing etc. Initial action to reduce RV’s needs to be taken whilst the restrictions are current so time is of the essence. Expanded Retail Discount has been used to deliver a huge slug of rates relief to businesses, along with grants of up to £25k, but its application across the country has been patchy and inconsistent. We’ve successfully obtained this for many clients where it’s been initially refused by the council.
We’ve also seen an increase in the number of sale and leasebacks – where occupiers sell the freehold but take a lease on market terms, allowing them to stay in occupation but releasing the capital tied up in their freehold buildings to ease cash flow in difficult times. The market for these investments remains strong and it can be an extremely effective way of releasing capital.
There has been absolutely no government assistance for those paying rates on empty property and landlords still have 100% liability on vacant space. Properties that were forced to close under Government restrictions shouldn’t be liable for rates over the period of enforced closure and we’re pursuing this for numerous clients. The case is strongest on vacant retail, hospitality and leisure properties and relates to the legality of whether rates can be charged rather than reducing the RV.
There isn’t a one size fits all approach to commercial property and a bespoke strategy can help occupiers through the difficulties created by Covid.
Richard Roberts Bsc MRICS
01925 20 50 60